Federal Reserve Governor Kevin Warsh said inflation is too high and there are "clear" risks it won't slow as investors expect, suggesting he sees price gains as a greater risk than economic growth.

"Inflation, though down somewhat from its level earlier this year, remains uncomfortably elevated," Warsh said in a speech at the New York Stock Exchange. "Financial market prices imply that inflation will continue its gradual but persistent downward track during the forecast period. There remain, I believe, clear upside risks to that inflation outlook."

Warsh's views on the economic outlook are consistent with those of his Fed colleagues, based on minutes of the central bank's Oct. 24-25 meeting, at which it left the benchmark U.S. interest rate at 5.25 percent for a third session. Warsh said today he expects the economy to be "remarkably resilient," though a "sharp pullback" in housing will hold down growth.

AntiSpin: What Warsh means, is, "Inflation is high, economy may tank." They're out in full force, warning the markets as clearly as they can be: "Stagflation, is coming." The boyz on Wall Street stay busy trying to pack in another nice end-of-year bonus before the markets take what they know is likely to be a multi-year breather, at least as severe as the 2001 to 2003 period, but likely more challenging. Can you blame them?

Our excerpt from the panel discussion linked to in our poll (http://www.itulip.com/forums/showthread.php?t=632) did not include this from Paul Volcker, Mr. Kill Inflation Now:

"I am a little bit more worried about inflation than Mr. Corrigan–although he expressed a worry. Not that it’s high, not that it’s going to go running away, but it’s kind of creeping up.

"And I am impressed by the degree of pressure–if that’s the right word–psychological pressure, political pressure there is not to do anything about it. A lot of people out there on Wall Street and on Main Street are operating on the assumption that nothing very startling will happen in terms of restraint. And that’s reflected in attitudes pretty broadly. But once people are convinced that that’s the case, it can creep up on you. And the more it creeps up on you, the more difficult it becomes to do something about it.”

Remember, Ka-Poom Theory (http://www.itulip.com/forums/showthread.php?t=417) is mostly a bet that the current political course with respect to inflation–which is in line with the historical course of politicians throughout time–will continue until there is a crisis, and that the crisis will be addressed in the same politically weak-willed manner as other crises are today. So when Paul Volcker says he is surprised by the "political pressure there is not to do anything about" inflationary pressures, he should not be, and neither should you.

This is an early sign that the political will to do anything about inflation isn't in this Fed. The reason is that this Fed is worried sick about the very limited options they've been left by the Bush administration to fight the coming recession: tax revenues relative to expenditures are too low; entitlements are unfunded; the nation has developed a dysfunctional reliance on its political, military, and economic enemies to fund twin fiscal and trade deficits; the dollar has already been significantly depreciated; over $770 billion in home equity has been extracted; and after the Iraq war, the US has few friends abroad left who can extend a hand to help the US in a time of need without wrecking their political careers at home (see Tony Blair). First, they need to see the US suffer.

If it's all left the Fed, what can they do but print?

lewman

11-21-06, 11:40 PM

eric,
if I followed you (and the ka poom theory) correctly, the feds are left with only one weapon to revive the economy and that's to print money (by lowering rates for example), and that would trigger the POOM and inflation will go thru the roof.
Do you think it's possible that the KA phase (i.e. disinflation) won't even happen and we go straight to POOM ?
cheers
lew

DemonD

11-22-06, 04:15 AM

Lewman -

From what I understand, we would be in the "ka" phase right now. A period of disinflation where everything seems pretty nice and then followed by a big POOM.

I believe the forecast EJ has put out is Q2 2007, although that is an estimate. I would have to say that with the track record here, I'm ready to move when there is a call for the top of the stock markets in any case.

And I will make this statement (somebody tell me if I'm applying the knowledge here correctly): If you see the Fed start lowering the federal funds rate, it's time to get the hell out of dodge, and make sure you have some commodities or securities based on commodities, because they will be printing money like Helicopter Ben and inflation will be hitting everyone nine ways till Sunday.

Do I have that right?

jk

11-22-06, 12:21 PM

And I will make this statement (somebody tell me if I'm applying the knowledge here correctly): If you see the Fed start lowering the federal funds rate, it's time to get the hell out of dodge, and make sure you have some commodities or securities based on commodities, because they will be printing money like Helicopter Ben and inflation will be hitting everyone nine ways till Sunday.

Do I have that right?

the bulls argue that the fed lowering rates means happy times are here again. there is likely to be umpteenth fed-is-done rally at first. history says the market doesn't do so well intermediate term after the pause and first cut, because the fed is lowering for a reason- the economy has slowed and profits are likely to shrink. commodities are likely to start their next leg up at that time - i agree.

lewman

11-22-06, 03:24 PM

Thanks for the explanation. I do also beleive that the FEDs will continue to pursue a reflationary policy and stoke inflation as a result. Whether inflation will get to levels of the 70s is I guess still debatable.

Just curious other than commodities & their stocks, what other investments could do well. I guess if one uses a lesser of two evils strategy, sterling & euro are not bad given the USD can no longer rely on interest rate differential to save the day like it did in 2005.

I'm still debating on chinese equities which has been on a tear recently. Question is whether the chinese government can still grow the economy at a 8%+ rate with a US slowdown. And whether there's enough momentum in the market to carry it through.

jk

11-22-06, 05:06 PM

I'm still debating on chinese equities which has been on a tear recently. Question is whether the chinese government can still grow the economy at a 8%+ rate with a US slowdown. And whether there's enough momentum in the market to carry it through.

i'm wary of chinese equities as the markets are opaque. i would rather look at peripheral markets - taiwan, singapore, phillipines, thailand, indonesia, etc

Finster

11-22-06, 06:59 PM

i'm wary of chinese equities as the markets are opaque. i would rather look at peripheral markets - taiwan, singapore, phillipines, thailand, indonesia, etc

Me too, FWIW ...

spunky

11-22-06, 07:00 PM

To me the market ( still not really sure what that is ) :D is wary what will happen in 07 , and flush with all this cash( record profits, because the good times havent been shared with labor :mad: ) ; they are doing what is the best to do in any business; eliminate the competition. You are seeing tonnes of takeovers and buyouts, yet the amount of money invested in real capital has slowed appreciably :eek:

Man cant India get any respect ; it is always Asia this; Asia that. Let them quit buying our bonds and we will Boycott those 08' Olympics ;)

Why not find dividend paying asian stocks :confused:

Finster

11-22-06, 07:30 PM

...

Why not find dividend paying asian stocks :confused:

They have a pretty decent selection Down Under ...

bart

11-22-06, 09:19 PM

They have a pretty decent selection Down Under ...

Was that an innuendo? ;)

http://www.nowandfutures.com/grins/kinky.wav :eek: :rolleyes: ;)

Getting back in cage now...
http://www.nowandfutures.com/grins/cage_brain.png

DemonD

11-23-06, 04:27 AM

Someone let me know if this is violating copyrights or something, but I just saw this and found it very applicable (and humorous).

10

metalman

11-23-06, 03:42 PM

Someone let me know if this is violating copyrights or something, but I just saw this and found it very applicable (and humorous).